Palestinians to get their money / Israel restores full financial ties with Abbas government now that Hamas kicked out

Steven Erlanger, New York Times

Published 4:00 am, Monday, July 2, 2007

2007-07-02 04:00:00 PDT Jerusalem -- The Israeli government agreed Sunday to restore full financial ties with the Palestinian Authority, now that President Mahmoud Abbas has decreed an emergency government with no members from Hamas.

Israel will now resume monthly transfers of taxes to the government as well as return, in installments, about $600 million withheld from the Palestinians since early 2006.

On Sunday, Israel transferred about $120 million, the equivalent of a month's payroll for the entire Authority.

The decision marks an end to an Israeli policy of fiscal isolation of the Palestinians that began with the installation of a Hamas-run government in March 2006, after Hamas won a legislative majority that January, beating the rival Fatah faction. The policy, together with a Western ban on aid to the Hamas government, was designed to undermine that government and bring it down, officials conceded at the time.

Now, with Hamas having taken over the Gaza Strip, Abbas, of Fatah, has fired a Hamas-dominated "unity" government and installed an emergency Cabinet led by Salam Fayyad, an independent economist close to Fatah.

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Israel and the United States are trying to bolster Abbas, who favors a peaceful negotiated solution with Israel, and help him create a functional society in the West Bank. Israel views Abbas as weak and indecisive, but officials see him, by firing the old government, as finally standing up to Hamas.

Fayyad, educated in Texas and a former economist with the World Bank and the International Monetary Fund, is prime minister, finance minister, and foreign minister. As finance minister, he will be receiving direct transfers from the Israeli treasury -- and from the West. It remains to be seen whether the European Union, which has been paying part of the salaries of up to 80,000 Palestinians through direct transfers to their bank accounts, will now revert to putting its aid -- $900 million in 2006 -- solely through Fayyad.

Fayyad has said that he intends, as prime minister of the new government, to pay Palestinian civil servants in Gaza also, even though Hamas holds effective power there. Many Palestinian Authority employees in Gaza work in health and education and many favor Fatah, and it would be politically impossible for Fayyad to spend all Palestinian income, some of which comes from Gazans, solely in the West Bank. But how he will pay Palestinian security forces in Gaza without financing Hamas, at least indirectly, is unclear.

Israeli officials said Sunday that they would have no objection if Fayyad paid Gazans.

"Whether he pays Gaza salaries is not our business," said Miri Eisin, a spokeswoman for Prime Minister Ehud Olmert. "This is a Palestinian government that has already outlawed all armed groups outside the official security services, and we want to cooperate with them to give a clear-cut chance for Palestinians to be ruled in a different and effective way."

Some of the money will inevitably go to support Hamas members and groups, but Eisin said that Israel has tried to ensure that it will not be passed to any "nongovernmental groups linked to terrorism." Israel, the United States, and the European Union classify Hamas as a terrorist organization.

Israel collects taxes and import duties for all goods coming into Israel and the Palestinian territories under a customs agreement. It is then supposed to pass the part belonging to the Palestinians -- roughly $45 million to $50 million a month after deductions for Israeli-supplied water and electricity -- to the Palestinian Authority.

But since March 2006, Israel has provided only $100 million to Abbas for health and human services, leaving about $600 million untransferred. That money will now be paid in five or six installments to Fayyad's government, though some $200 million of it is subject to legal appeals by private Israeli companies, like Dor Alon, which sells gasoline and fuel oil to the Palestinian Authority, to settle unpaid debts.

The Israelis will also now pay, beginning this month, the taxes owed monthly, so there will be no further withholding. The Israelis are also holding regular meetings with senior officials of the new government and those close to Abbas on more extensive security cooperation.

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